Member Sign In

You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating indiv idual securities.

If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.

Time to Invest in Australia ETFs as Earnings & Dividends Rebound?

The outlook for the Australian economy is really good. The earnings season turned out to be the best in the last decade, thus providing a base for the stocks to achieve new highs.

According to the Commonwealth Bank of Australia, a greater proportion of S&P/ASX 200 Index components were in the green since 2010. According to Bloomberg, around 69% of the companies raised their dividends during the earnings period as the focus is now on rewarding shareholders than retaining the money for investments.

The narrowing current account deficit is one of the factors for a bullish take on the Australian economy. The gap between Australia’s overseas earnings and payments to foreigners fell to $3.9 billion. Data released on Mar 1, 2017 show that Australia narrowly dodged recession by growing 1.1% in the last quarter of 2016.

Australia’s terms of trade, the ratio of the nation’s export prices to its import prices grew 9.1%, owing to strong price increases in coal and iron ore (read: Can Coal ETFs Pick Up Steam in 2017?).

According to the Chief Economist of Deutsche Bank, Adam Boyton, the current scenario in the Australian economy could drive the Australian Dollar to the north of 80 cents per US dollar, which hasn’t happened since May 2015.

This fund is the most popular Australian ETF in the space, offering exposure to the most liquid equities in the Australian economy. Considering the fact that this fund manages an AUM of $1.7 billion and charges a relatively moderate fee of 49 bps, it can be a great bet for investors looking to go long on the Australian economy with relatively less risk.

This fund tracks the market cap-weighted MSCI Australia Index. The fund is heavy on Financial Services (43%) and Basic Materials (15%). It has a dividend yield of 4.01%. The fund offered a 9.05% return year to date and a 32.76% return over the last one year. As such, EWA currently has a Zacks Rank #1 (Strong Buy) with a Medium risk outlook.

This ETF is another such fund offering exposure to the Australian economy. The top two holdings are Financial Services (24%) and Basic Materials (22%). Rising commodity prices make this a good investment. More importantly, considering the recent boost in dividends across the companies on S&P/ASX 200, a dividend weighted ETF like AUSE is a great bet for investors focusing more on current income. Investors must note that such a strategy might tilt the scales in favor of sectors with higher distributions.

This fund tracks the WisdomTree Australia Dividend Index. Managing an AUM of $36.5 million with an expense ratio of about 58 bps, it is relatively less concentrated (with 32% in the top 10 holdings) compared to other popular ETFs offering similar exposure. It has a dividend yield of 3.28%. The fund offered an 8.28% return year to date and a 35.15% return over the last one year. As such, the fund currently has a Zacks Rank #2 (Buy) with a Medium risk outlook (read: What is Driving Asian ETFs Higher?).

SPDR MSCI Australia Quality Mix ETF :

The top two holdings of this fund are Financial Services (33%) and Real Estate (15%). This fund tracks the MSCI Australia Quality Mix A-Series Index, which is an index of Australian securities derived from three sub-indexes based on one of three factors: quality, low-volatility, and value. Each sub index receives equal weight.

The fund is highly concentrated with more than 50% assets in the top 10 holdings and manages AUM of $11.9 million. It has a low expense ratio of just 30 bps. It has a dividend yield of 4.13%. The fund offered a 7.90% return year to date and a 27.60% return over the last one year. As such, the fund currently has a Zacks Rank #1 (Strong Buy) with a Medium risk outlook.

Bottom Line

Owing to above average profit increases, dividend distribution increases and narrowing current account deficit, the outlook for the Australian economy has become quite bullish. As a result, gaining exposure to the Australian economy may turn out to be good option now. Therefore, allocating portfolio assets to the above mentioned ETFs can prove to be a good return enhancer.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>

Resources

Client Support

Follow Us

Zacks Moblie App

Zacks Research is Reported On:

Yahoo

MSN

Marketwatch

Nasdaq

Forbes

Investors.com

Morningstar

Copyright 2018 Zacks Investment Research

At the center of everything we do is a strong commitment to independent research and sharing its profitable discoveries with investors. This dedication to giving investors a trading advantage led to the creation of our proven Zacks Rank stock-rating system. Since 1988 it has more than doubled the S&P 500 with an average gain of +25% per year. These returns cover a period from 1988-2017. Zacks Rank stock-rating system returns are computed monthly based on the beginning of the month and end of the month Zacks Rank stock prices plus any dividends received during that particular month. A simple, equally-weighted average return of all Zacks Rank stocks is calculated to determine the monthly return. The monthly returns are then compounded to arrive at the annual return. Only Zacks Rank stocks included in Zacks hypothetical portfolios at the beginning of each month are included in the return calculations. Zack Ranks stocks can, and often do, change throughout the month. Certain Zacks Rank stocks for which no month-end price was available, pricing information was not collected, or for certain other reasons have been excluded from these return calculations.

Visit performance for information about the performance numbers displayed above.